Indian edible oil industry to grow at 6% till 2015 - Rabo India report

Announcement / Corporate August 06, 2010, 16:40 IST

The Indian edible oil industry is expected to grow at a rate of 6 percent annually over the next five years, said Rabo India in its latest research report. India relies heavily on imports to meet over 50 percent of domestic edible oil requirements. Through the years, Indias domes tic production of oilseeds has not grown in line with edible oil demand. Lower levels of oils production have resulted in low capacity eed utilisation.
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Key highlights

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India is the fifth largest producer ofmajor oilseeds in the world while the domestic edible oil market is estimated at USD 15 billion India is expected to import 9 million tonnes of edible oil in 2009/10 Palm and soy oils constitute more than 95% of total edible oil imports Increasing trend of consumer shift towards branded/packaged oil. Branded oil segment in India is annually growing at the rate of 20%, with sunflowers and soy oils leading the market

Domestic oilseed production not going to meet demand The gap between demand and production of edible oil in India has increased sharply in recent years. Since 2000 -01, production of oilseeds grew at the rate of 4.7% per annum, but edible oil consumption increased at the rate of 6.5% per annum. Additionally , further increase in areas under oilseed cultivation is a challenge due to lack of arable land and competition from grains and other cash crops. "Under normal circumstances, oilseeds compete with food grains for acreage. However, due to government policies favouring production of competing crops over oilseeds, a higher share of irrigated land has gone to grains and cereals crop, said Pawan Kumar, Rabo India Analyst. He further added, Low quality seed, low access to inputs, poor farming practices, and the fact that much India's of oilseed crop is cultivated in unirrigated areas is the reason for oilseed productivity to be lower than the global average. Notably, Indias annual current per capita consumption of about 12.7 kilogrammes is well below the world average of 20 kilogr ammes, thus providing growth opportunities for the Indian edible oil industry. These opportunities have attracted investments from some of the worlds leading global players. Consumers shift towards cheaper oils The domestic prices of various edible oils are largely correlated Palm oil, being the cheapest oil, impacts the price movement of other . oils. Palm, soy and rapeseed (mustard) together account for 73% of edible oil consumption in India, with palm oil accounting 44% of for total consumption. Market share of soy & palm oi have gained significantly over the years, due to increased access to imports. The ls strong growth of soy and palm oil consumption reflects Indian consumers sensitivity to prices. Non-packaged oils are estimated to account for nearly 50% of consumption inboth urban and rural markets. However, the development of the retail sector in India, backed by rising income levels, has provided an opportunity to sell branded packs especially i the urban n markets. The branded segment is growing at 20% annually with su nflowers and soy oils leading the market. Imports of palm & soy oil increasing

The f il e f the I i i , the esulti l sses e li el t ise the eget le il i t eeds i . This, i turn, ill further i t domesti edi le oil ri es. igh ri es of domesti oilseeds make it economicall i able to import cheap crude oil from origin and refine it at Indian ports. It is expected that India ill import around million tonnes of edible oil this ear, noted r. Kumar h o authored the report. e further added, As reliance on imported palm and soybeans is increasing, players are acti ely looking for plantation acquisition or d evelopment at a global level. The step to integrate backward will increase the profitability of i ndustry players in the long term. Gl l lm i im i m i i

The domestic oil prices in India move largely in line with international price movements, especially for the oils which India imports.

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s and edible oils are two of the most sensitive essential Oils commodities. India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the agricultural econom and accounting for the estimated production of 28.21 million tonnes of nine cultivated oilseeds during t he of the world oilseeds production. year 2007-08. India contributes about 6-7 Export of oilmeals, oilseeds and minor oils has increased from 5.06 million Tones in the financial year 2005-06 to 7.3 million tons in the financial year 2006-07. In terms of value, realization has gone up from Rs. 5514 crores to Rs.7997 crores. India accounted for about 6.4 of world oilmeal export. Typ fO mm n y n u n In

India is fortunate in having a wide range of oilseeds crops grown in its differe nt agro climatic zones. Groundnut, mustard/rapeseed, sesame, safflower, linseed, nigerseed/castor are the major traditionally cultivated oilseeds. Soyabean and sunflower have also assumed importance in recent years. Coconut is most important amongst the plantation crops. Efforts are being made to grow oil palm in Andhra Pradesh, Karnataka, Tamil Nadu in addition to Kerala and Andaman & Nicobar Islands. Among the non-conventional oils, ricebran oil and cottonseed oil are the most important. In addition, oilseeds of tree and forest origin, which grow mostly in tribal inhabited areas, are also a significant source of oils. Figures pertaining to estimated production of major cultivated oilseeds, availability of edible oils from all domestic sources and consumption of edible oils (from Domestic and Import Sources) during the last few years are as under: ( In h T nn )

2001-2002 2002-2003

206.63 148.39

61.46 46.64

Oil Year Production of Net availability of edible oils Consumpt (Nov.- Oct.) Oilseeds from all domestic sources Oils(f m mp 2000-2001 184.40 54.99

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million tonnes of consumption by To conclude, the Indian Edible oil industry is expected to grow % annually, and reach to increasing demand and lower production, India will continue to depend on imports going forward.

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251.86 243.54 279.79 242.89 297.55

71.40 72.47 83.16 73.70 86.54

124.30 117.89 126.04 115.87 142.62

Source : (i) (ii) Net Vanaspati,

Production of oilseeds : Ministry of Agriculture availability and consumption of edible oils: Vegetable Oils & Fat Directorate of

There are two major features, which have very significantly contributed to the development of this sector. One was the setting up of the Technology Mission on Oilseeds in 1986. This gave a thrust to Government's efforts for augmenting the production of oilseeds. This is evident by the very impressive increase in the production of oilseeds from about 11.3 million tonnes in 1986-87 to 24.8 million tonnes in 1998-99. There was some setback in 1999-2000 because of the un-seasonal rain followed by inclement weather. The production of oilseeds declined to 20.7 million tonnes in 1999-2000. However, the oilseeds production went up to 27.98 million tones in 2005-06 and was 24.29 million tonnes during 2006-07 oil year. As per the 3rd advance estimate by Ministry of Agriculture dated 22.4.08 the production of nine major oilseeds is estimated to be about 28.21 million tonnes during 2007-08. The other dominant feature which has had significant impact on the present status of edible oilseeds/oil industry has been the programme of liberalisation under which the Government's economic policy allowing greater freedom to the open market and encourages healthy competition and self regulation rather than pro tection and control. Controls and regulations have been relaxed resulting in a highly competitive market dominated by both domestic and multinational players.

Status of Vegetab e oil in ustry

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India is a vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil while those in the East and North use mustard/rapeseed oil. Likewise several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically hard fat consumers and therefore, prefer Vanaspati, a term used to denote a partially hydrogenated edible oil mixture. Vanaspati has an important role in our edible oil economy. Its production is about 1.2 million tonnes annually. It has around share of the edible oil market. It has the ability to absorb a heterogeneous 10 variety of oils, which do not generally find direct marketing opportunities because of consumers preference for traditional oils such as groundnut oil, mustard oil, sesame oil etc. For example, newer oils like soyabean, sunflower, ricebran and cottonseed and oils from oilseeds of tree and forest origin had found their way to the edible pool largely through vanaspati route. Of late, things have changed. Through technological means such as refining, bleaching and de-odouraisation, all oils have been rendered practically colourless, odourless and tasteless and, therefore, have become easily interchangeable in the kitchen. Newer oils which were not known before have entered the kitchen, like those of cottonseed, sunflower, palm oil or its liquid fraction (palmolein), soyabean and ricebran. These tend to have a strong and distinctive taste preferred by most traditional customers. The share of raw oil, refined oil and and 10 vanaspati in the total edible oil market is estimated at 35 , 55 respectively.

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Vegetable Oil In ustry

(As on January 2009)
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Averag Annual e Type of Capacit Capacit Vegetabl No. Of y y e Oil Units (Lakh M Utilisati Industry T) on 1,50,0 425 Oilseed 00 (In 10Crushing (Appro terms of 30 Units x) Seeds) 419 (In terms of Solvent OilExtractio 795 34 bearing n Units Material ) Refinerie s 51 attached (in 127 45 with terms of Vanaspati oil) Units Refinerie 37 s (in attached 226 29 terms of with oil) Solvent Units Independ 35 ent (in 590 36% Refinerie terms of s oil) 123 Total (in Refinerie 943 37% terms of s oil) 58 (in terms of Vanasp ati, Vanaspati 268 19% Bakery Units Shorteni ng & Margari ne) Source: Directorate of Vanaspati, Vegetable Oil and Fats. Oilseeds crushing units include crushing units in the small -scale sector as also in the organised sector. The capacity utilisation generally ranges from an average of 10% for the ghanis (small scale sector) to around 30% in case of the expellers in the organized sector.

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